Because power consumption varies depending on what you're doing.
The XO-1 and XO-1.5 last for about 3 hours with normal use, but that can be extended to about 11 hours if you turn off the backlight (not needed when in sunlight) and wireless radio.
You seem to be applying First World logic to a device meant for the Third World. The XO laptop was designed with a combination of ruggedness, repairability, low power, connectivity, low cost and of course educational value. No other device can claim that, and probably no other device will last five minutes in the developing world without failing for some reason.
With that said, the XO-1.5 models are much better than the XO-1.0 that you have.
Why do these kids need a full powered laptop and can't just have a Kindle with (or without) unlimited 3G.
Because a kindle is just an e-book reader, and an XO is so much more? You can't expect any kind of interactivity when it takes several seconds for a screen to refresh. Oh, and you can have 3G on an XO if you want - just plug in a USB modem.
To their benefit, OLPC has talked about this as part of their mission.
Speaking for our work in OLPC Australia, we place a high emphasis on teacher enablement.
There is another interesting factor with social acceptance. Sitting at a desktop computer isolates you from the people nearby, but a laptop is less intrusive. For example, sitting on a couch with the laptop on your lap, there is nothing in the way of eye contact with others. Netbooks, tablets and cell phones are even less intrusive, and thus more socially accepted.
A key but very undersold benefit of the XO and it's Sugar UI is their focus on collaboration, by design. The activities (apps) let kids share and learn together, so they are encouraged to interact.
But... If it does miraculously appear for under $200 and can run Android or some other Linux variant, I'll buy 3 or 4...
The OLPC OS is a variant of Fedora, so it runs Linux out of the box.
Never call a man a fool. Borrow from him.